Alphabet's stock took a near 7% hit following the company's Q2 earnings report, despite blowing past revenue and EPS expectations. The tech giant posted $119.8 billion in revenue, rising 24% year over year, with earnings per share soaring to $9.11, well above the $2.87 forecast. Yet investors focused on a sharp increase in planned capital expenditures, casting a shadow over the otherwise strong results.

Record Search Revenue and Cloud Growth

Google Search hit an all-time quarterly revenue high of $63.3 billion, up 17% thanks in large part to AI-driven features like AI Overviews and AI Mode, the latter attracting 1 billion monthly active users worldwide. Google Cloud also showed impressive momentum, soaring 82% to $24.8 billion in sales. Its order backlog jumped by $50 billion in a single quarter, reaching $514 billion by the end of June.

However, Alphabet raised its 2026 capital expenditure guidance to between $195 billion and $205 billion, a significant increase from the previous $180 billion to $190 billion range. This follows $91 billion spent last year, signaling a major strategic investment in infrastructure, chips, and data centers. These assets are depreciated over time, which means the heavy upfront spending will weigh on profits for years to come.

Adding to concerns, the company reported a negative free cash flow of $5.8 billion in Q2 once excluding a $98 billion surge in the value of its investments in ventures such as Anthropic and SpaceX. This unrealized gain inflated the headline EPS figure, making the underlying cash generation less impressive.

On the regulatory front, Alphabet faced an EU antitrust fine of approximately $1 billion, marking another challenge amid an intense spending spree. Insider stock sales amounted to $7.67 million in the past three months, including shares sold by key executives.

Despite the market reaction, Wall Street remains mostly positive on Alphabet’s outlook. The average analyst price target stands around $410, with major firms like Royal Bank of Canada maintaining buy ratings. Alphabet also declared a quarterly dividend of $0.22 per share, payable in mid-September.